Employer Healthcare Insurance Requirements: What’s New in 2023
For employers, navigating the constantly evolving landscape of healthcare insurance requirements is always challenging. However, 2023 has brought its own unique set of challenges and considerations.
Complex regulations, changing standards, tighter enforcement, harsher consequences, and less room for error mean a strong understanding of the requirements will be more important than ever this year for employers who want to avoid significant penalties.
In this post, we’ll explore the healthcare insurance requirements for employers, changes to affordability thresholds and enforcement in 2023, and increased penalties for non-compliance this year. To discover how you can ensure compliance and what considerations to consider for the future, continue reading below.
What is the employer mandate under the Affordable Care Act (ACA)?
Let’s begin by reviewing the basics of the employer mandate under the Affordable Care Act (ACA).
Also known as the “employer shared responsibility” or the “pay or play” provisions, the employer mandate is a crucial component of the ACA. This provision, signed into law along with the rest of the Act in 2010, requires certain employers to offer their full-time employees and dependents health insurance coverage or face potential penalties.
Generally speaking, employers subject to the mandate must offer health insurance plans that meet specific minimum standards, including providing essential health benefits and being affordable to employees.
If an employer fails to meet these requirements and at least one of their full-time employees receives a premium tax credit or subsidy for purchasing coverage through the Health Insurance Marketplace, the employer may be penalized.
However, not all employers are subject to this requirement.
Only “applicable large employers” (ALEs) must meet the employer mandate requirements. Put simply, this means employers who have an average of 50 or more full-time employees, including full-time equivalent (FTE) employees, during the preceding calendar year. (The IRS generally defines a full-time employee as one who works, on average, at least 30 or more hours per week.)
Broadly, the mandate stipulates that such ALEs must offer affordable health insurance coverage to at least 95% of their full-time employees and their dependents. This coverage must extend to the end of the month in which employees turn 26.
However, small businesses with fewer employees that do not qualify as ALEs do not need to offer health coverage. As some 99% of companies in the United States are small businesses, the employer mandate does not impact most U.S. employers. That said, a majority of these employers choose to offer voluntary health benefits as incentives to attract top talent all the same — in fact, nearly half of all workers in the U.S. private sector had health insurance available to them through their employers in 2019, even though most of those employers were not subject to the ACA mandate.
It’s also worth clarifying that no federal law requires any company of any size to offer healthcare coverage. So employers can technically disregard the ACA mandate — if they’re willing to shoulder the significant penalties this decision would incur.
What are the ACA requirements for employers in 2023?
In 2023, several significant changes have occurred regarding the employer mandate. For employers, these changes directly impact compliance, impacting the affordability threshold and potential penalties.
Here are two major changes to the ACA employer mandate in 2023:
- Adjustment of the affordability threshold: In 2022, for coverage to be considered affordable, it could not cost more than 9.61% of an employee’s annual salary. In 2023, this percentage has been reduced to 9.12%.
- Increased enforcement of ACA requirements: Due to an increase in the IRS’s budget, this heightened enforcement could lead to more rigorous compliance checks and potentially higher penalties for non-compliance.
Together, these two developments mean that it is more vital than ever for employers to ensure compliance and avoid penalties.
Another prominent change in 2023 revolves around the issue known as the “family glitch.”
Previously, if an employee’s self-only coverage met affordability thresholds, it could prevent family members from accessing premium tax credits through the ACA exchange, even if the employer-sponsored family coverage was unaffordable. The Department of the Treasury and the IRS introduced a new rule to address this.
Starting January 1, 2023, a separate affordability test is now applied to an employee’s spouse and dependents. If the required contribution for family coverage exceeds the affordability threshold, family members can qualify for premium tax credits and purchase subsidized coverage on the ACA exchange.
Finally, there is another challenge for employers in 2023: good-faith penalty relief is no longer in effect for employers.
In the past, when a company’s reporting was incorrect or incomplete, that company could attempt to show that it had made a good-faith effort to comply with ACA requirements. If the IRS found that they had done so, they could be eligible for good-faith relief from penalties.
In 2023, that will not be the case; employers will be held accountable for not abiding by ACA requirements. On top of the boost in enforcement activities, employers must take extra care to avoid penalties.
What are the employer mandate penalties in 2023?
More distressing news: penalties are up in 2023.
Here are two types of penalties employers could encounter:
- Failure to Comply Penalties: These penalties, known as 4980H(a) and 4980H(b), are assessed when an employer doesn’t meet specific requirements. The 4980H(a) penalty for 2023 is $240 per month, or $2,880 annually, per employee. The 4980H(b) penalty for the 2023 tax year is $360 per month, or $4,320 per year, per employee.
- Failure to File Penalties: The IRS also charges separate penalties for failure to file current returns on time and provide correct payee statements. For the 2023 tax year, the penalty for failing to file 1095-C forms is $290 per return if filed after August 1, 2023. This penalty increases to $580 if the employer disregards the filing responsibilities.
These penalties underscore the importance of ensuring that coverage meets the necessary criteria.
How can employers ensure compliance with healthcare insurance requirements in 2023?
All applicable large employers must file an annual report that ensures compliance with the employer mandate.
The filing, using Forms 1094-C/1095-C, includes information on all employees offered and accepted coverage and the cost of that coverage on a month-by-month basis.
The deadline for submitting is March 31. While the deadline for employee distribution has been extended each year, it’s now permanently extended, and this year, an additional 30-day extension has been granted, setting the deadline for providing employee forms on March 2.
It’s also relevant to note that there is a progressive penalty structure for late filings.
The first tier covers April 1 to April 30, imposing a penalty of $50 per form for any forms submitted or corrected during this period. The second tier extends from May 1 to August 1, with a higher penalty of $110 per form for forms filed within this timeframe.
After August 2, a more significant penalty of $280 per form is applied to late submissions.
Employers should meticulously evaluate their offered coverage to ensure compliance with healthcare insurance requirements in 2023 and beyond. Calculating affordability and understanding minimum value standards are also key.
Future considerations
The landscape of healthcare insurance requirements for employers will likely continue shifting and evolving in years to come. Staying updated on IRS guidelines and maintaining accurate records are essential to a proactive compliance strategy.
With penalties at stake, taking proactive measures to offer comprehensive and compliant coverage to employees is crucial to fostering a healthy and thriving workforce.
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